Abstract
The Variable Interest Entity (VIE) structure is a network of contracts that connects the shell company listed on U.S. exchanges to the operating company in China. In 2000, Chinese enterprises first created the VIE structure to circumvent stringent PRC regulations and gain direct access to capital markets overseas. However, despite its strategic utility, the VIE structure has remained in a regulatory gray area. While the VIE contracts effectively mimic equity control, they face an uncertain reception from the PRC government, posing significant risks to U.S. investors.
Following the Luckin Coffee fraud scandal in 2020, the U.S. government passed the Holding Foreign Companies Accountable Act (HFCAA) as its first attempt to address the risks associated with VIE-structured Chinese companies. But the HFCAA has faced criticism for its limited effectiveness. Meanwhile, within China, court judgments, arbitration awards, and administrative decisions have sent mixed signals regarding the VIE structure, ranging from prohibition to neutrality and subtle encouragement. Together, these mixed signals convey a clear message: a complete ban on the VIE structure, as suggested by some experts, is not optimal for the PRC.
With a deeper understanding of the VIE structure’s legality, U.S. investors can better anticipate and adapt to changes that may impact their investments. This Comment predicts that the PRC government will recognize the legality of the VIE structure in the near future and suggests that this should be done through legislative means without further hesitation. Prompt legal recognition of the VIE structure through amending pertinent regulations will pave the way for China and the U.S. to establish a regulatory framework that promotes stability, enhances transparency, and fosters sustained growth in cross-border investments.
Recommended Citation
Zhen Tian,
La "Vie" Continue: Legal Recognition as a Gateway to Sustainable Cross-Border Investments Between China and the U.S.,
74
Emory L. J.
711
(2025).
Available at:
https://scholarlycommons.law.emory.edu/elj/vol74/iss3/3
